Monday, March 8, 2010

YA Global -Yorkville + Cornell- Many Names, Same Games

The Cold Truth reported earlier this year that sources close to the SEC allege that Mark A. Angelo and Matthew Beckman – key people at Yorkville's PIPE fund (aka/YA Global + aka/Cornell Capital Partners)– may soon be hit with inquires. Yorkville Advisors, wants to make as much as $400 million this year by offloading firms it was forced to take private in the credit crisis. Is this a possible attempt to circumvent appropriate GAAP standards, as many former client companies were taken off the public funds books and purchased by an entity most believe is controlled by Agnelo & Beckman who are now seeking buyers amid improving market liquidity.

YA Global (aka/Yorkville/Cornell Capital) makes direct loans typically to nano and micro cap public companies. The recent credit crisis led to tremendous problems for all financiers in this space. Prior to 2008, Yorkville had already seized collateral on more than 12 occasions and saw that number rapidly increase during the recession as the over-extended companies in their portfolio struggled. Like most financiers in this genre, the firm is typically at the top of the capital structure- meaning all assets belong to the financiers in the case of bankruptcy, but there will still be an arduous road ahead including many bankruptcy proceedings along with the associated lawyers fees and court dates, in hope of collecting its collateral- collateral whose value may be in question.

The cold truth is that smaller companies, by nature, are the most dependent on capital, a fact their financiers are well aware of. Typically these small businesses are willing to endure the most onerous of terms. At issue, during the credit crisis amid investor withdrawal, many of the financiers were forced into the position of picking and choosing which companies to fund with the few dollars that were being returned via the depressed micro cap trading markets. This led to many small companies folding and then the unavoidable write downs. It also led to what may be construed as questionable accounting at YA Global as certain assets were funded, certain assets written-down and yet others taken private, all leaving the investors wondering- 'what exactly is going on here?'

According to Tom Anderson, director of investor relations, said YA Global Investments LP had taken $200 million in writedowns in the last 18 months due to companies in its 100-name portfolio defaulting. Now they want to sell the 12 to 15 companies that they took control of due to loan default. According to an 'independent valuation' - (we have not been able to determine who this independent evaluator is, nor do we know the process utilized to make the valuation determinations)- the portfolio is thought to be valued at approximately $400 million.

The defaulting companies' portfolio consists of market capitalizations that range in size and include a cross-hatch of sectors: technology, consumer, and energy companies- all based in the U.S. Tom Anderson believes the YA Global has several options, "We've been approached by private equity firms looking at some of the positions we have, and oil and gas companies looking at our energy concerns," He also made it very clear that one possibility, that is being very seriously considered, is to re-list these companies.

We understand at this time, in the micro cap market, there are several investigations, by multiple agencies into several of the largest financiers, marketers and promoters. The SEC, the US Attorney and the FBI, all of whom are addressing issues including: questionable valuation's, return profiles, write-down's, kickbacks and inappropriate off balance sheet transactions. It seems when it comes to investigating the micro cap market, the facts aren't always well known, one thing we know for sure- the resources that have been allocated to clean up this marketplace up-just don't know their way around the neighborhood. The unfortunate fact is that many who eat, live and breath this micro-cap market cant believe that such great government resources have been so poorly allocated for so long toward the wrong targets.

Tuesday, January 26, 2010

SigTARP Announcing Investigation Into AIG/New York Fed

AIG and the Federal Reserve Bank of New York are targets of an investigation into whether the overseer had instructed the troubled insurer not to disclose certain key information to the public.

Neil Barofsky, special inspector general for the $700 billion bailout will tell the House Oversight Committee on Wednesday that he has initiated an investigation into whether the New York Fed instructed AIG not to disclose more than a dozen controversial counterparty transactions to the Securities and Exchange Commission. He will try to determine if there was "any misconduct relating to the disclosure or lack thereof" concerning the counterparty transactions. Barofsky also announced an investigation into whether the Federal Reserve fully cooperated with his office in its audit of AIG.

AIG's $181 billion bailout, was headed by Secretary Geithner when the counterparty transactions in question were made. The probe was announced after an audit on AIG issued in November by Barofsky. The audit found that the New York Fed failed to use its clout to negotiate concessions from AIG's business partners. Specifically at issue- $62.1 billion of taxpayer and AIG funds were funneled to 16 banks that were counterparties to AIG insurance contracts-and the fact that this amount represented the full-dollar value of the underlying assets that the counterparties had insured through AIG instead of a better negotiated discounted value which many believe could have easily been negotiated.

AIG/Government payouts to counterparties greater than $1 billion:

Societe Generale $16.5 billion
Goldman Sachs $14 billion
Deutsche Bank $8.5 billion
Merrill Lynch $6.2 billion
Calyon $4.3 billion
UBS $3.8 billion
Deutsche Zentral Genossenschaftsbank $1.8 billion
Barclays $1.5 billion
Bank of Montreal $1.4 billion
Royal Bank of Scotland $1.1 billion
Wachovia $1 billion

More importantly, at issue is the "secretive culture" at the New York Fed in which the overseer attempted to hide information from the public. After the audit was released in November, House Oversight Committee Ranking Member Darrell Issa, R-Calif., asked Barofsky for copies of correspondence between the New York Fed and AIG, but Barofsky told Issa that he couldn't hand over a copy of the records because the New York Fed told him not to share them with the Oversight Committee.

What were they hiding?

The Committee subpoenaed the New York Fed for the documents earlier this month and recently received 250,000 pages of e-mails and other correspondence. Upon review, the committee found that the New York Fed had urged AIG not to make any reference in its SEC filing that the counterparties had received the dollar-for-dollar value. Giethner's people expressed concern that the details of the counterparty transactions would be made public. In a Nov. 11, 2008, conversation, New York Fed official Alejandro LaTorre urged his colleagues to delete a reference to the full payouts from a request for proposals soliciting administrators for the counterparty transactions.

"As a matter of course, we do not want to disclose that the concession is at par unless absolutely necessary," LaTorre wrote.

It is painfully obvious that the New York Fed was well aware that negotiating with counterparties on a dollar for dollar basis was overpaying. Timothy Geithner and his cronies did all they could to cloak the payments from the Oversight Committee and from the SigTARP because they knew at the time, this would be viewed exactly as the back room dealing it was. Former employees of the wealthiest banks in the world utilizing their influence to flow TARP funds to their brethren who, if negotiating at arms length, would never have received full value.

The Oversight Committee will hold a hearing on the matter on Wednesday at 10 a.m. ET. Barofsky, Geithner, former Treasury Secretary Paulson and the lead attorneys for the New York Fed and AIG are all slated to testify.